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Darnelle White's picture

The power of "free to choose"

Purvin: "It isn't the right to dictate sources of supply that is harmful, but it is the abuse of the right that frequently turns franchising's greatest advantage into its greatest fault!"

As Lord Acton wrote in a letter to Bishop Mandell Creighton in 1887: "Power tends to corrupt, and absolute power corrupts absolutely." Therein lies the rub of mandating product sources.

In contrast to many franchisors, franchisee cooperatives that control the supply chains and distribution of products don't mandate that their owners buy. A franchisee is free to purchase products from Dunkin' franchisees' DPC or buy the same specifications elsewhere. Burger King has their franchisee supply management company. Subway theirs and DQ theirs too. The Asian American Hotel Owners Association has its e-purchasing site. I doubt the franchisees' supply management firm will ever have a hundred percent of franchisees purchase, no matter how good the price. But I dare say that the purchasing organization will receive high proportions of franchisees who buy from their collective might, particularly when franchisees receive financial statements on margins and markups from the purchasing firm, their company.

I'd say the concept of a franchisee being free to buy a given standard is pretty universal among franchisee advocates. For example, the American Association of Franchisees & Dealers stresses competition in its franchisee bill of rights, which came first before all others. The Coalition of Franchisee Association advocates freedom to select goods of a given specification in its Universal Franchisee Bill of Rights, and the Asian American Hotel Owners Association clearly states in its 12 points of Fair Franchising: "In general, Franchisees should be free to buy conforming goods from any vendor, not just those mandated by the Franchisor."

Forcing a purchase fosters laziness and abuse.

The dynamics and expectations of a cooperative are very different than when a franchisor becomes involved in the supply chain. Being free to choose incentivizes franchisee purchasing firms to innovate so as to attract more member buyers and dollars. It's capitalism at its best. Add to that mix transparency and franchisee say - these have probably done more in bringing down product price than any franchisor purchasing mandate could ever do. We see time and time again that franchisee owners demand it. Franchisor owners run from it.

Don Sniegowski's picture

Stories of franchise collaboration wanted!

Robert Purvin writes: "The challenge for franchisees, prospective franchisees, and the entire franchising community is to identify and build collaborative cultures in which the benefits that can flow from a large network are cultivated and shared extensively! "

Yes, indeed. Well said.

If an association, franchisee or franchisor leader has stories of collaboration, please let me know. I am quite interested in reporting on innovations in organizational structures, practices, corporate governance, contracts, law, and business tools that improve collaboration.

Email me at don@bluemaumau.org.

Darnelle White's picture

Remember when antitrust laws meant something in franchising?

Twenty years ago the top two franchisee complaints were the lack of promised support and the lack of market protection. Today by far the most frequent complaints received at the AAFD deal in some fashion with a franchisor abusing its ability to dictate suppliers to the franchisee's significant detriment - Mr. Purvin

This is a very interesting observation from Mr. Purvin. I wonder if this trend of more complaints of supply abuse has anything to do with the pulling away from antitrust litigation and concerns of yesteryear. Remember when franchisors were litigated under concern of monopolistic control of supplies and the harm it would cause distributors? Society was different. Those were the days of only regional banks for fear of the power and weaknesses of national banks, even though size could provide advantages.

Trust busting has lost its savor, particularly in franchising.

In the last decades, franchisors have successfully argued that there was not monopolistic control of a supply with respect to a franchise owner because that franchisee had a choice of other options before they signed the agreement with the brand. They have largely succeeded in arguing that they compete with many other brands so there cannot be monopolistic control.

Although unlikely, should the winds shift (this month's re-introduction of Glass-Steagull Act redux by Senator John McCain (R-AZ) is arguably early evidence of a shift) to where courts one day are once again concerned with one-sided market power as it is applied to franchises, the industry could find itself in trouble. Having said that, the association for franchisors and their friends wield a lot of lobbying might on Capitol Hill and intellectual argument among franchisees so I doubt that will happen anytime soon.

Too Common

It is amazing to me that franchisors can not look past the short term gains, and comprehend the long term damages to their brands caused by those "most common complaints". It appears somewhere in the growth of a franchise it trades hands or hires a "really smart' guy that shows the franchisor or ownership how much revenue is being left on the table. It's a kin to musical chairs - the ownership/management team who gets stuck with out a chair when the music stops playing pays the price for the short sided approach to franchisor revenues.... When the franchisor/franchisee relationship moves from symbiotic to PARASITIC, the writing is on the wall. As a multi-unit franchisee in a smaller national chain, I am suffering through all of those complaints, and have witnessed the closure of 100's of stores over the last several years. Of course, there is always a convenient explanation like "the economy" or "poor operational scores".

Ray Borradale's picture

Its not unusual to be had by everyone

Sadly, and the comment has been made here a number of times by many of BMM's experts; most franchisors today cannot resist the windfall that the franchisees mandatory purchasing offers.

While it has been a key ingredient in the process of chuirning franchisees the abusive practices have not been limited to the worst of the worst.

Ray Borradale's picture

'Expert' franchising observers find this to be news

Another great article in the series. Thank you Robert.

Today by far the most frequent complaints received at the AAFD deal in some fashion with a franchisor abusing its ability to dictate suppliers to the franchisee's significant detriment.

I was recently taken to task when I made a similar statement regarding franchgising in Australia. This is the taboo topic of franchise marketing and one so downplayed that the 'expert' franchising observers find it to be news.

If you're in the right system you do.

And if not, either don't buy, or buy knowing this.